Reference no: EM132720413

Question: Whats is a good response to the information below and summary? Your opinion on it... Balance Sheet

Purpose: The balance sheet report's a company or individual's assets, liabilities, and equities on a given date. It aids in assessing the risk of future cash flows, analyzes liquidity and solvency, and showcases the current financial position.

Major Limitations:

One of the major limitations of the balance sheet is that it does not include all financial values. This means that some assets or liabilities are not going to be reported. The result will be that the balance sheet will not be entirely accurate in reporting the financial position of a company. It could either be more or less successful depending on what was omitted.

The next major limitation of the balance sheet is that all items listed are reported at their historical cost. The market value of the assets may be larger than what was reported and result in an inaccurate analysis.

The last limitation of the balance sheet is that accounts can be based off of judgements and estimates. This means that accounts such as Allowance for Doubtful Accounts, Depreciation, or Accrued Liabilities could be inaccurate and lead to the wrong conclusions about the company.